An employee travels out of town on a regular basis for business purposes. When the employee is out of town the employee needs to pay a person to care for her children.

If the employer pays the employee's childcare expenses will those payments be tax deductible and subject to FBT?

ANSWER:

Where the employee incurs expenditure and the employer pays that expenditure or reimburses the employee for the expenditure, the payment is taxable income of the employee. The employer will need to gross up the payment and account for PAYE on it.

Where the employer incurs expenditure for the benefit of an employee, a fringe benefit will arise on which the employer may need to pay FBT.

Therefore, if the employer is reimbursing or paying the childcare expenses for the employee, it will be taxable income of the employee and the employer will need to account for PAYE. If the employer incurs the childcare expenses for the benefit of the employee an unclassified fringe benefit will arise. Whether the employer needs to account for FBT will depend on whether the employer breaches the de minimis threshold for unclassified benefits.

The childcare expenses will be tax deductible to the employer under the general permission on the grounds that they are the cost of providing a fringe benefit or part of the employee's remuneration.